FDIC Law, Regulations, Related Acts

4000 - Advisory Opinions

Regulation O: Loans to Related Interests

FDIC-79-3

May 23, 1979

Pamela E. F. LeCren, Attorney

Your letter to Mr. Redford J. Wedel, Acting General Counsel of FDIC,
has been forwarded to me for reply. In your letter, you request an
opinion on whether or not the *** can make loans to certain companies
that you own, either on your personal note or the notes of the
companies involved.

Regulation O generally restricts loans by a nonmember insured bank
to its executive officers and their related interests (companies they
control) to a total of ten percent of the bank's capital and unimpaired
surplus. As the president of the ***, you are an executive officer as
that term is defined in Section 215.2(d) of the regulation. Any loans
to the companies you control are considered loans to yourself and thus
fall under the ten percent ceiling applicable to you.

You should note, however, that certain extensions of credit are
subject to a higher ceiling than the general ten percent limit. The
appendix to FDIC Bulletin BL-17-79, which sets out the regulation,
contains a list of fourteen types of extensions of credit that either
have no ceiling or have a ceiling higher than ten percent. For example,
if you or one of your related interests were to take out a loan from
the *** and to give the bank a note secured by goods or commodities in
the process of shipment, the loan would not be subject to any statutory
limit. If the loan were secured by a like amount of United States
bonds, Treasury bills, or notes, the loan is subject to a fifteen
percent and not a ten percent ceiling. The effect of the fourteen
exceptions is to permit you or your related interests to borrow an
aggregate amount greater than ten percent of the bank's capital and
unimpaired surplus. The amounts borrowed would, however, count against
your ten percent ceiling. For example, if you had outstanding balances
on loans to yourself and to your related interests that amounted to
ninety-five percent of the ten percent ceiling, the bank could make an
extension of credit to you that used up the remaining five percent and
exceeded the ceiling if the extension was an excepted extension. But
having fully used your ten percent ceiling, no further extensions could
be made unless the extension was an excepted extension.

In short, ***, Regulation O does not prohibit you from taking out
loans with the *** to finance the companies you control. It does,
however, limit the extent to which you can do so. If the needs of your
companies cannot be satisfied within the confines of the regulation,
then you will need to seek credit at another
institution.